Socializing home mortgages — are we all to be Section 8 now?

Via John Crudele at the NY Post, serious consideration is being given to Bove’s idea: give homeowners new mortgages at 1% for 30 years guaranteed by a federal agency, a la Section 8 housing: “Let’s get back to the simple problem, i.e. too many people cannot pay their mortgages,” says Bove. “The simple solution is to find a mechanism to pay the mortgages.” Once that happens, he says, the securities these mortgages went into will be able to trade again. And all the other layers of securities built upon these mortgages will also start to regain their value. What mechanism can be used to pay the mortgages?

One response to “Socializing home mortgages — are we all to be Section 8 now?”

Bailout proposals such as this – all they do is to transfer major losses onto the banks. The banks would lose an important stream of future earnings – the money that was supposed to be paid at the old mortgage interest rates!

Some people may say … that the banks should adopt this proposal – since the home owner who walks away from their house will pay nothing anyway.

But the banks must still consider all the American home owners who _are_ being responsible – and honoring their original mortgage contracts. These are the people who will keep the banks afloat. If the banks adopt a policy that undermines trust and confidence in the basic mortage system, such as the proposal described, then what’s the point of anyone cooperating?

We simply can’t avoid the unavoidable. Some US banks are not going to survive this year. I expect some smaller banks will go bankrupt. And I would not be surprised, now, to see a failure in one of the major US banks. “Failure” could entail being carved up and sold to foreign interests, or outright bankruptcy.

The US credit bubble is collapsing. And it still has a long way to go.